The staff of the Securities and Exchange Commission (SEC) announced on June 24, 2004, that it plans to begin releasing SEC comment letters and issuer responses related to disclosure filings reviewed by the Divisions of Corporation Finance and Investment Management. The comment letters and responses will be available to the public on the SEC's website (http://www.sec.gov). This new policy will apply to filings made after August 1, 2004.
Why is the SEC doing this?
Last year information service providers (e.g., GSI/LivEdgar) started requesting comment letters and issuer responses from the SEC under the Freedom of Information Act (FOIA) and selling the information to their online subscribers. The SEC staff became inundated with FOIA requests. The staff believes it is "appropriate to expand the transparency of the comment process so that the information is available to a broader audience, free of charge."
Are the staff's comments the official positions of the SEC?
The SEC noted in its announcement of this new policy that comment letters merely set forth staff positions on a particular filing and are not the official expressions of the SEC. The staff's positions in the comment letters are limited to the specific facts of the filing and do not apply to other filings. Despite this, the avail-ability of comment letters and responses is valuable for both issuers and investors. In particular, prior to making a filing, issuers will be able to review comments made to similar filings and potentially avoid pitfalls encountered by other companies.
What comment letters and responses will be made public?
The SEC staff will release its comment letters and the responses relating to disclosure filings that are made with the Divisions of Corporation Finance and Investment Management after August 1, 2004, and that are selected for review.
For transition purposes, the staff will look to the filing date for the filing that is the primary focus of the staff's review. For example, if a registration statement that was filed before August 1 is being reviewed, no comment letters will be released under this new policy even if that registration statement incorporates by reference reports that are filed after August 1 and those reports are reviewed as part of the review of the registration statement. However, if the registration statement being reviewed is filed after August 1 and the staff's review includes reports filed before August 1 that are incorporated by reference into the registration statement, the comment letters and responses will be released under this new policy.
How soon after a staff review will the comment letters and responses be released?
The staff will not release the correspondence until at least 45 days after the staff has completed its review of the filing. Therefore, it is unlikely that any comment letters and responses will be posted until the fourth quarter of 2004.
Can a company keep its responses to SEC staff comments confidential?
Issuer's responses to SEC comments
The SEC's comment letters themselves are never subject to any confidential treatment but an issuer may request confidential treatment of certain of its responses to SEC comments. Rule 83 under the SEC's FOIA rules allow for confidential treatment of certain information submitted to the SEC, including responses to SEC staff comments. Under Rule 83, the issuer is not required to provide a basis for the confidential treatment request until a FOIA request is made for the information. Likewise, the SEC will not make a determination about the validity of the confidential treatment request until a FOIA request is made. Rule 83 also provides for an appeal process should the SEC staff not agree with the company's basis for confidential treatment. The information will not be released publicly until a final determination is made regarding the request. If confidential treatment is granted with respect to information supplied to the SEC as part of the review process, the confidential treatment will expire after ten years unless renewed for another ten years.
In order to request confidential treatment pursuant to Rule 83, an issuer must do the following:
- Provide two versions of its response to the SEC staff -- a redacted version that may be filed electroni-cally and an unredacted version that must be submitted to the SEC in paper form.
- Mark each page of the submission with the words "Confidential Treatment Requested by [Name]" and with an identifying number and code such as a Bates-stamped number.
- The submission must be accompanied by a letter that specifies the information for which confidential treatment is requested and refers to the submission by the identifying number and code. The letter must be marked "FOIA Confidential Treatment Request" on the first page.
- A copy of the request must be sent to the SEC's FOIA Office.
The SEC staff discourages issuers from trying to use Rule 83 to request confidential treatment for the entire response letter. The staff will question requests for confidential treatment under Rule 83 that are on their face overly broad. Issuers should limit the request to specific information for which they want confidential treatment and make sure that they have a legitimate reason for making the request, such as substantial harm to the issuer's competitive position.
Supplemental information provided to the staff
Where the issuer has provided supplemental information (e.g., reports or studies) to the staff, the issuer may request, pursuant to Rule 418(b) under the Securities Act or Rule 12b-4 under the Securities Exchange Act, that the staff return the information once the staff has completed its review. The information will be returned to the issuer upon request, provided that:
the request is made at the time the information is furnished to the staff;
the return of the information is consistent with the protection of investors;
the return of the information is consistent with the provisions of FOIA; and
the information was not filed in electronic format.
New representation to be made by issuers in response letters
When a company is involved in an SEC enforcement inquiry or investigation, the staff, as part of the com-ment process, may ask the company to represent in writing that it will not use the SEC's comment process as a defense in any securities-related litigation. This request is commonly known as a "Tandy" letter. Since the staff will begin making all comment letters and responses publicly available under this new policy, the staff will require all companies whose filings are reviewed to make this representation. The staff stated that "[t]his request and representation should not be construed as confirming that there is or is not, in fact, an inquiry or investigation or other matter involving the filer."
SEC requests suggestions for transition
The SEC has stated that it is interested in receiving suggestions on how to make the transition and process work efficiently. Comments may be submitted in electronic or paper format.